This is the continuation of a previous post, where I share some of the major lessons that I’ve learnt from reading the book “Rich Dad, Poor Dad” by Robert Kiyosaki.
Working for Money
Many people have said “Don’t work for money, make money work for you”. However, I think this statement is rather oversimplified. You should work for money when you start to grow your wealth, and then let the money you earned work for you by investing them into assets that compound in value over time. It is important to take a mental note of your relationship with money so that it does not exercise an excessive amount of influence over you.
You can do this by tracking how much you’ve earned and how much you’ve spent. Categorise these and cut down on unnecessary expenses or on income that takes too much effort to earn. Work for “good money” so that it will work for you later on. Work for “bad money” and you’ll spend more of it on gratification.
A Rich Dad’s True Assets
How does one work for “good money”? By investing in actual assets which contribute to your cash flow.
Robert Kiyosaki has mentioned something which changed my views on what I should consider as an asset or a liability. We usually consider our assets as our possessions with a positive net value, while we categorise our possessions which have a negative net value as liabilities. Robert Kiyosaki says that while this is what we are taught in school about assets and liabilities, he thinks that it is better if we consider assets as something that brings you positive cash flow, and liabilities as things which brings a negative cash flow.
For example, property is considered to be an asset by most of us because it has a positive net asset value. However, under Robert Kiyosaki’s definition, if the loan payment for the property is more than the rental income we were to receive if we rent the property out to others, it would be considered as a liability because acquiring it will make money flow out of our pockets rather than into our pockets.
Lesson learnt? Money used in acquiring assets that contribute to positive cash flow is “good money”. Money used in acquiring liabilities that reduces your cash flow is “bad money”. Make your money work hard for you by using it to acquire assets, not liabilities. Otherwise, you are just working for money.
What are possible assets that you can have? I have listed a few examples here (which are not exhaustive):
- Businesses you own which do not require your supervision. If they require you to be hands-on, consider it as a job where you work and earn an active income. It is not a source of passive income.
- Investments in equity and bonds.
- Property which nets you positive income. So no, the property that you live in is not considered an asset, unless you rent out a few rooms and the rental more than covers your loan payments.
Wealth & Riches – Is There a Difference?
We often use “wealthy” and “rich” interchangeably, but there may be a subtle difference between the two terms. You are rich when you the assets you own are high in value. You are only wealthy if you have the ability to tide through a period of time with the same lifestyle even when your working income is drastically reduced.
What does this mean? It means that you can be rich and not wealthy, and you can also be wealthy and not rich. Accumulate wealth and not riches. Don’t adopt a lifestyle you cannot afford.
Real Gold, “Black Gold”, or “Virtual Gold”?
Funny thing is, I don’t really think much of actual physical gold, unlike some of my friends who made some investments in them. That’s probably because I’m not so interested in shiny objects :D. On the other hand, we also have other investors who invest in oil or oil producing companies, and oil is also known as “black gold”. Similarly, many companies have also realised the importance of acquiring data or information, and this “asset” is also a form of “virtual gold”.
We often associate things that are precious with gold. So according to Rich Dad, being able to identify what will be precious in the future will be a strategic advantage. By understanding change and embracing innovation, you will be able to adapt better in an increasingly volatile and uncertain environment. Rich Dad says that clinging to old ideas means that you might get left behind when the world moves on.
What do I do to accumulate "gold"? Well, I brush up my knowledge on IT trends. In fact, Gartner will often publish a yearly overview of what they consider to be the strategic IT trends to take note of. Based on this, I research more on how companies are taking advantage of these trends to innovate and streamline their business processes or offerings. If I believe that the companies have great potential in implementing these strategic trends in their business, I might choose to invest in them if possible. In addition, I can also make use of this information to decide on what career moves to take.
In other words, identify what information is important, either in terms of your personal development, career or investments. Then start collecting more of such information, because they will be as precious as gold soon enough.
Acquiring or Converting Skills
Make use of the information you have collected by acquiring the proper skills. The reason why Rich Dad is able to make his money work hard for him is because he had the proper skills to do what he had to do, which is to manage his business and his employees.
In fact, I think that is an area that I can definitely improve upon. It is important to learn how to work with objects, such as machinery, IT systems, etc. But it is more important to learn how to work with people, or work with concepts. Having good communication skills and critical thinking skills will benefit most people in the long run.
Of course, being financially literate is also an important skill to have.
Unlike Poor Dad, Rich Dad believes that financial literacy is an integral part of good education. Being financially literate is required if you wish to be wealthy – a kind of financial freedom that I wish to achieve.
I hope that these lessons that I’ve learnt from the book are also useful for you. Thanks for reading!
If you are interested in my review for this book, you can find it here.
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